Why Mortgage Rates Don’t Always Drop After a Fed Rate Cut

Most people assume that once the Federal Reserve cuts rates, mortgage rates should immediately fall. But in reality, the opposite often happens.

Take last October as an example: the Fed announced a cut, yet mortgage rates actually jumped higher right after the news.

Why? Because markets don’t wait around for the Fed’s official announcement, they move in advance, based on what they expect is coming.

Markets Move on Expectations, Not Announcements

Mortgage rates follow the bond market, especially mortgage-backed securities (MBS). Traders start buying bonds weeks or even months before a Fed cut if they believe one is likely. That early demand pushes yields (and mortgage rates) lower.

By the time Jerome Powell officially announces the cut, much of the benefit is already “baked in.” If investors were hoping for something even bigger, like a deeper cut or signs of more cuts ahead, rates can actually climb after the announcement.

“Buy the Rumor, Sell the News”

It’s like a big holiday sale. Shoppers line up early, grab the best deals before the doors even open, and by the time you arrive, most of the discounts are gone.

The same thing happens with mortgage rates: the market reacts in advance. When the Fed finally delivers the cut, it’s old news. In October, we saw this play out perfectly, rates rose after the cut instead of falling further.

What Really Drives Mortgage Rates

Instead of focusing only on the Fed, here’s what usually has the biggest impact:

Inflation Trends – Falling inflation tends to pull mortgage rates lower.

Jobs Reports – Weak employment data often means lower long-term yields.

Global Demand for Bonds – More investors buying U.S. bonds pushes rates down.

The Fed is just one piece of a much larger puzzle.

What This Means for Homeowners

If you’re waiting for the Fed to announce a cut before refinancing, you could miss your chance. By the time the cut happens, the best savings may already be gone.

That’s why we built our Rate Watcher tool, to track your rate, and alert you the second the market makes sense for you.

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